from the just-the-facts dept

One of the common mantras is that patents are indispensable, particularly for smaller companies, in order to prevent inventions being appropriated. If that is true, then presumably innovative companies are patenting like mad in order to protect their inventions. But is that really the case? Since the necessity of patents is so "obviously" true, like so many other dogmas in the area of intellectual monopolies, people rarely look at the data to see whether it is. However, there is some research in this area, such as this 2012 paper from the UK, which explored the extent of patenting by companies over the last decade or so (pdf). Here are the main results:

One of the most puzzling findings in the empirical analysis of firms' patenting behaviour is the low proportion of patenting firms in the population of registered companies. Our investigation of this phenomenon in the UK finds that only 1.6% of all registered firms in the UK patent and that even among those that are engaged in some broadly defined form of R&D, only around 4% have applied for a UK or European patent during our period of analysis (1998-2006).

Perhaps famously "inventive" high-technology sectors employ them more than traditional markets? Or maybe this is just a UK thing? Well, yes, but only to a certain extent:

In our data, even in high-tech manufacturing sectors, which arguably produce the most patentable inventions, the share of patenting firms
in the UK does not surpass 10% . Restricting the high-tech sector to R&D-doing firms that also innovate, the share of patenting firms increases only to 16%.
Findings for the US are similar: Balasubramanian and Sivadasan (2011) find that only 5.5% of US manufacturing firms own a patent. Moreover, shares of patenting firms differ dramatically across sectors -- even within the manufacturing industry; for example in the UK, manufacturing of chemicals and chemical products has a share of around 10% of patenting firms whereas publishing and printing has a share of only around 1%. This suggests that (a) some firms
do not automatically patent all of their patentable inventions, (b) some firms avoid the patent system altogether, either because of its cost or because patenting is perceived to yield no additional benefit, and (c) some innovations involve inventions that are not patentable.

The rest of the paper explores the data in detail, and seeks to come up with some explanations as to why patents are not used as a matter of course. As you might expect, there's no simple answer; instead, it seems to be due to a complex mix of factors. But what is not in doubt is the fact that companies making things -- that is, those who aren't patent trolls -- do not regard patents as indispensable as some proponents would have us believe.

from the ORLY? dept

Back in March last year, the Indian government announced that it was granting its first compulsory license, for the anti-cancer drug marketed as Nexavar, whose $70,000 per year price-tag put it out of reach of practically everyone in India. Nexavar's manufacturer, the German pharmaceutical giant Bayer, naturally appealed against that decision, and the hearing before the India Intellectual Property Appeals Board (IPAB) has now begun. Jamie Love has provided a useful report on the proceedings; here's his summary of what's at stake:

The outcome of this trial, which focuses on the cancer drug Nexavar, is a matter of first impression for the IPAB, and is expected to set precedents on a wide range of issues, including the permissible grounds for granting compulsory licenses, the relationship between the India patent law and the TRIPS Agreement, and the setting of terms and conditions for the compulsory license, including the royalty rates.

Clearly, then, this is a crucially important battle for both sides, and Bayer has started throwing around some huge R&D numbers in an attempt to convince the IPAB that it should be allowed to retain its monopoly in India to recoup those costs:

Bayer presented a January 9, 2013 affidavit from Harold Dinter which made the claim that from 1999 to 2005 Bayer had spent "2 billion euros (approximately US$ 2.5 billion) in the identification and development of anti-cancer molecules leading to the successful approval of Nexavar in 2005." Dinter did not provide detailed support for the numbers, but said they were based upon Bayer's general R&D outlays for anti-cancer drugs, including but not limited to Nexavar, and that the estimate was supported by a new December 2012 study by Jorge Mestre-Ferrandiz, Jon Sussex and Adrian Towse, published by the Office of Health Economics (OHE). Despite its name, the OHE is not part of the government, but rather a largely industry funded private consulting firm. The study itself was paid for by AztraZeneca. Dinter and Bayer's lawyer also made extensive reference to the work of Joseph DiMasi, an academic who is also a drug company consultant.

In other words, it's the usual "don't worry about the details, just take our word for it" lack of transparency that characterizes the entire pharma industry. But this $2.5 billion is insanely high, even for an industry that regularly inflates the outlay on drug development by an order of magnitude. As well as the generic implausibility of such a high figure, Love cites a number of specific reasons why it's extremely unlikely. You can read the details in his post, but here's a key section:

Bayer's partner in the development of Nexavar is Onyx Pharmaceuticals. Onyx published annual estimates of its R&D spending on Nexavar.

…

Bayer paid for all research from 1994 to 1999 ($26.1 million), and this included research on several compounds in addition to the one now marketed as sorafenib/Nexavar. From 2000 onward, Bayer and Onyx split the R&D costs 50:50, and Onyx's share of the R&D costs were $134.8 million. The outlays on the entire R&D program that lead to the 2005 approval of Nexavar for Kidney cancer were $26.1 + (134.8 x 2) = $295.7 million. Of the $295.7 million, only a fraction was spent on the development of Nexavar for kidney cancer, and some of that benefited from a 50 percent tax credit under the US Orphan Drug Act.

To the put the entire $295.7 million into perspective, ignoring the tax credits, that represents a little more than one quarter of the current global sales for sorafenib/Nexavar, a product that will maintain its monopoly in most markets through 2020.

$295.7 [million] is also just 11.8 percent of the $2.5 billion estimate that Bayer wants the IPAB to accept as its R&D costs.

No wonder that Bayer was unwilling to explain how it arrived at that extraordinary figure. But it's hard to see how the pharma company expects to win this case citing numbers that are basically an insult to the intelligence of India's experts.

Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings.

That seems like a pretty big problem, and one we should all be concerned about. Now, both Apple and Google are cash rich companies, so they can spend a lot on patent issues, but all of that is money that isn't going into actual innovation or developing new products. And, for smaller companies, it's much worse -- since basically all of them don't have the kind of cash reserves we're talking about with Google and Apple. If even these big companies are spending more on patents than on R&D, can't we agree that the system is completely broken?

Some more damning numbers have emerged in a post at Rational Arguments, showing that even the drug companies' inflated R&D costs pale in comparison to what they really spend their money on. The first post pulls numbers from the Fortune 500 listing of top 10 pharmaceutical companies (by sales) and finds some (sadly) unsurprising results:

Those companies spent a whopping $41 billion on research and development. That's a lot of money. But it's significantly less than the $49 billion (18%) in profit they made. Just so you know, the average Fortune 500 company in 2008 made 0.9% of sales in profits. So in a recession, pharma did very, very well. [The] pharmaceutical companies spent $83 billion on marketing and administration. That's more than twice as much as they spent on research and development. That's an insane amount.

So it's a little disingenuous to claim that Americans must continue to spend so much to fund R&D when you could make cuts to either profits (which are big) or to marketing and administration (which is gargantuan). R&D just isn't that big a piece of the pie. There's plenty of fat to trim in there before research and development.

And why do pharmaceutical companies spend so much on marketing? It's simple, really. They're not creating new drugs. (Yes. That seems like a really moronic explanation, but read on...)

From 2000-2007, 667 new drugs were approved by the FDA. Of those, only 75 (11%) were new molecules that were much better than what we already had. In fact, over 80% of all drugs approved were no better than what we already had. Those are "me-too" drugs. Why do the pharmaceutical companies spend so much on marketing? Because you have to really promote drugs that really have no benefit over others that already exist. You have to convince people to buy those.

You know what needs no promotion? Awesome new drugs that save lives. When was the last time you saw a commercial for chemotherapy? For epinephrine? For steroids? Those drugs need no promotion - doctors just know to use them. But I bet all of you know about Nexium. Or Cialis.

If you've managed to keep your incredulous rage (and whatever meal you last digested) suppressed, here's some more evidence dismissing pharma's everlasting claim to what's left in your wallet.

The Incidental Economist has a followup post by Aaron Carroll (who wrote the previous post at Rational Arguments), detailing even more evidence that the drug industry is blatantly lying when it claims its high prices are justified by its R&D investments. The twist here is that these companies, for the most part, aren't even doing their own R&D. (Click through for an informative and highly irritating graph. The colors are nice, though...)

The majority of research cited in patent applications was done in academic centers. Some more was done in other non-profit or government research centers. Only 15% of the research was done by industry. That's not a very compelling argument for the indispensable contribution of industry to research.

Carroll quotes another study, this one performed by Public Citizen in 2001, which showed that "U.S. taxpayer-funded researchers conducted 55 percent of the published research projects leading to the discovery and development of these drugs (and foreign academic institutions 30 percent)." In fact, drilling down even further into the data reveals that only one in seventeen papers come from the industry itself.

What we've got is an industry that uses the research (and money) of others to keep its profit margins right where it wants its. Even worse, it keeps going back to the government, fur-lined pimp hat in hand, looking for more funding, more patents, more patent extensions and more control over the medical community. Anyone looking to the pharmaceutical "community" for an answer to their health problems is in for a world of very literal hurt. The industry doesn't seem to mind if you're chronically ill. It just hates losing paying customers. To, like, death and stuff. And so it lowers its costs and raises its prices, trying to find the perfect balance between lifelong medical care and the local morgue.

from the there-goes-the-sec dept

Washington DC can be a funny place when it comes to negotiating legislation. Apparently, an effort to renew a program that provides billions in funding for important long term research efforts (you know, the kind of programs the government should be funding) may get held up over some amendments added to the bill... including one that would ban federal money going to any gov't employees disciplined for viewing porn on their computers. Effectively, the amendment means if you view porn on your computer as a gov't employee, you are fired. Actually, you don't even have to view the porn. The language says no federal funding can go:

"to salaries to those officially disciplined for violations regarding the viewing, downloading, or exchanging of pornography..."

Want to get a federal employee fired? Send them an email with a pornographic picture as an attachment. What does this particular amendment have to do with federal funding for research? Apparently, the guy who wrote the amendment says he's upset about giving money to the NSF, because it merely "disciplined" and suspended rather than fired an employee found with porn on his computer. Of course, give the recent revelations about porn web surfing at the SEC, if this goes through, say goodbye to the SEC.

Because no one wants to be seen as supporting government employees viewing porn, this particular amendment passed easily. We're coming up on election season, and you can bet no Congressional reps wanted to hand their opponents this line in a commercial: "While in Congress, Rep. X voted in favor of letting federal employees view porn on their computers..." or something along those lines.

Of course, that same amendment also pulls funding for a number of programs and may cause the entire bill to be withdrawn, leaving the status of funding for a lot of research in limbo. Now, I'm all for making sure that the funding is used in a reasonable manner, and if certain programs are ineffective, it's worth looking to see if they should be removed from the bill. But, to lump in decisions on funding with a program about firing employees who view porn just seems like a crass political ploy during a debate on a particularly important issue. It may be par for the course in Congress, but to those of us who actually care about innovation, it's stories like this that make us so cynical about the US government.